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Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: SHRI BHAVNESH SAINI & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. This appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals), Meerut dated 23/8/2016 for assessment year 2012 – 13 where the appeal filed by the assessee against the order of the learned Income Tax Officer, Ward – 2 (5), Meerut dated 27/3/2015 is dismissed. 2. The assessee has raised the following grounds of appeal:- “1. That the Id. CIT(A) has erred in law as well as on the facts of the case by confirming the additions/disallowances of Rs.71,77,943/- u/s 40(a)(ia) of the Income Tax Act, 1961 and the various findings made by the authorities below are factually incorrect and legally untenable and the submissions made by the appellant have not been considered in right perspective thereof and the various judicial pronouncements relied upon by the appellant have wrongly been ignored.
2. Without prejudice to above, the Id. CIT(A) has erred on the facts of the case by observing that “it is an undisputed fact that the appellant had made commission payment of Rs.71,77,943/-" as neither the appellant has paid nor credited the said amount to the payees thereof and the act of payment has been done by his principal telecom company at their part and the TDS, if at all was to Sudhanshu Gupta Vs ITO, (Assessment Year: 2012-13) be deducted, the deduction ought to have been made by the telecom company only, who has made the impugned payment.
3. That in any case, the Id. CIT(A) has erred in law by confirming the disallowance of Rs.71,77,943/- without considering the applicability of the provisions of section 194H to the appellant, as the appellant has neither paid nor credited the said amount to the accounts of retailers in his area and the appellant and the retailers did not have any agent principal relationship.
4. That the Id. CIT(A) has erred in law by ignoring the fact that the receipt and payment of commission by passing notional entries in appellant’s ledger account by his principal, did not represent his real income and expenditure, as the income had never been received by him or accrued to him and the expenditure was not incurred/spent by him but for the notional entries passed by his principal and therefore the disallowance of Rs.71,77,943/- u/s 40(a)(ia) is unlawful & unjust.
5. That without prejudice to above ground, the disallowance, if, at all is required to be made, the same ought to have been restricted to 30% of the total amount in terms of section 40(a)(ia) as amended by Finance (No.2) Act, 2014, w.e.f. 01.04.2015 as the said amendment being curative in nature has to be given retrospective effect w.e.f. A.Y.2004- 05.
6. That the Id. CIT(A) has erred in law as well as on the facts of the case by confirming the additions/disallowances of Rs.54,722/- u/s 37 of the Income Tax Act, 1961 and the various findings made by the authorities below are factually incorrect and legally untenable and the submissions made by the appellant have not been considered in right perspective thereof.”
The assessee has raised in fact six effective grounds of appeal
however, the solitary point involved in the appeal is the disallowance of INR 7177943/- u/s 40 (a) (ia) of the Income Tax Act 1961 on account of alleged commission payments made by the assessee. The brief facts of the case shows that the assessee is engaged in the business of trading of grocery items. Assessee is also distributor of SIM cards of M/s Unitech Wireless North Pvt. Ltd and earning commission income from it. Assessee has also claimed deduction of commission of INR 7177943/- paid by him to various sub-dealers of M/s Unitech Wireless North private limited. The assessee has not deducted tax u/s 194H of the income tax act. Therefore Page | 2 Sudhanshu Gupta Vs ITO, (Assessment Year: 2012-13) the learned assessing officer held that the same amount is disallowable under section 40 (a) (ia) of the Income Tax Act. Accordingly same was disallowed and the assessment order under section 143 (3) of the income tax act was passed on 27/3/2015 determining the total income of the assessee at INR 8063335/– against the income disclosed as per the return of income of the assessee of INR 830670/–.
4. The assessee aggrieved with the order of the learned Assessing Officer preferred an appeal before the learned CIT(A). The learned CIT(A) upheld the action of the learned Assessing Officer holding that the learned AO has rightly disallowed the expenditure of INR 7177943/- debited by the assessee in profit and loss account on account of commission payment without deduction of tax at source. Therefore, the assessee aggrieved with the order of the learned CIT(A) has preferred an appeal before us.
5. The learned authorised representative stated that assessee is a prepaid distributor of Unitech Wireless North private limited. He referred to the agreement entered into by the assessee with that particular company. He further submitted that the assessee is required to pay commission to the retailer and some dealer. He stated that the mobile service provider companies have already deducted tax at source as per the provisions of section 194H on behalf of the assessee on commission paid to them, i.e. retailer. He further stated that the commission was directly paid to the retailer/sub dealer by the mobile companies, though, for the purpose of the accounting, the assessee showing the payment of commission to the retailer in his books of accounts. He further referred to the certificate issued by the Telenor Communication Services Private Limited dated 17/03/2015 wherein it has been certified by the company that the company has paid the commission after deducting tax deduction at source to the retailer directly on behalf of the assessee. He further referred to such certificate placed at page number 24 of the paper book. In view of this he submitted that the assessee is not required to deduct Sudhanshu Gupta Vs ITO, (Assessment Year: 2012-13) tax at source on the payment made to the retailer as full tax deduction at source has already been made by the Unitech Wireless limited. He further stated that identical issue has been decided by the coordinate bench in case of Sri Manoj, Jain vs ITO in for Assessment Year 2011–12 vide order dated 17/7/2018 wherein on identical circumstances, the disallowance made under section 40(a)(ia) for want of deduction of tax at source is deleted. He further referred to the para number 5 of the order wherein relying on another decision, coordinate bench has deleted the disallowance. He therefore submitted that the issue is now squarely covered in favour of the assessee.
The learned departmental representative vehemently supported the order of the lower authorities and stated that when the assessee has shown the commission expenditure in his books of account, then assessee should have deducted tax at source and if the telecom company has deducted tax at source it is not sufficient to allow the claim of the assessee.
We have carefully considered the rival contention and perused the orders of the lower authorities. The assessee is working for a telecom company as an authorised distributor and entered into an agreement with that telecom company as distributors. The assessee has also in turn sold the product of the telecom company through retailers and sub distributors. In the books of accounts of the assessee, it has shown the payment of commission to those parties. However the assessee has failed to show that it has deducted tax at source on the payment made to such retailers or distributors on commission payments. Therefore learned assessing officer disallowed same and such disallowance was confirmed by the learned CIT(A). Before us, the assessee has relied upon the decision of the coordinate bench in case of Sri Manoj, Jain vs the ITO in ITA No. 238/JP/2016 for assessment year 2011 – 12, where on identical facts and circumstances, the coordinate bench has deleted the disallowance for the reason that where the assessee is only an intermediary between the cellular mobile operator and the retailer, and the payment of commission Sudhanshu Gupta Vs ITO, (Assessment Year: 2012-13) was directly made by the cellular mobile operator companies to the retailer or sub dealer, after deduction of tax at source, then the assessee is not required to deduct any TDS on the said amount directly paid by the company and only the accounting entries were carried out by the assessee in his books of accounts. In view of this, the coordinate bench has stated that such disallowance cannot be made in the hands of the assessee who is merely an intermediary. Before us, the assessee has also submitted his Ledger account in the books of Unitech Wireless North private limited at page number 25/36 of the paper book and further photocopy of the certificate issued by the Unitech Wireless (North) private limited at page number 24 of the paper book. According to that certificate it has been certified by the telecom company that it has paid commission after deducting tax at source to the retailers is directly on behalf of the assessee and the retailer Commission is accounted in the distributor books by doing debit and credit entries as per the policy of the company. It is further stated that the amount appearing in the Ledger account of the assessee is net of tax deduction at source for which form number 16 has been duly issued. According to the certificate it has been certified by the telecom company that it has deducted tax at source as commission has also been paid by the telecom company. However on verification of the profit and loss account of the assessee, he has recorded gross commission income on the credit side of the profit and loss account of INR 8023023/- and on the debit side has a debited by the expense of commission paid of INR 7177943/–. Therefore, apparently the accounting system adopted by the assessee and certificate given by the telecom company are showing different pictures. The learned assessing officer, looking at the books of accounts of the assessee, has disallowed the above sum. Further it has also not come out from the orders of the lower authorities that whether the assessee is an intermediary or the person responsible for payment of commission to the retailers/ dealers. These details are required to be verified by the learned